[MarketING] Bank Stocks That Rose Significantly, Taking a Breather

Bank Stocks Decline for Second Day
Dividend and Other Upward Momentum Remain Valid

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] Bank stocks, which had supported the KOSPI rally by maintaining an upward trend, have been weak for the second consecutive day. This is interpreted as a result of the poor performance of U.S. banks and the release of profit-taking sales. Since the upward momentum such as dividend expectations for banks remains valid, it is expected that after a brief pause, they will prepare to rise again.

Bank Stocks Weak for Two Consecutive Days

As of 10:15 a.m. on the 18th, the KOSPI was at 2,369.38, down 10.01 points (0.42%) from the previous day. It fell for the second consecutive day, losing the 2,370 level. Meanwhile, the KOSDAQ is rising, recording 712.13, up 2.42 points (0.34%).

The weakness of bank stocks is prominent. KB Financial Group, Shinhan Financial Group, and Hana Financial Group are down by around 1%, and Woori Financial Group also fell close to 1%. This marks the second consecutive day of weakness following a sharp decline the previous day.

This is interpreted as being influenced by the earnings announcements of U.S. banks the previous day. Goldman Sachs announced that its net profit for the fourth quarter of last year was $1.33 billion, down 66% compared to the same period last year. Earnings per share were $3.32, significantly below the market expectation of $5.48. On the other hand, Morgan Stanley, which also announced earnings on the same day, saw a sharp decline in revenue in its investment banking division but overall exceeded market expectations. Morgan Stanley's fourth-quarter net profit was $2.24 billion, down 40% year-on-year. Earnings per share were $1.26, surpassing the market forecast of $1.23. Goldman Sachs' stock price fell more than 6%, while Morgan Stanley's stock price rose nearly 6%.

Seo Sang-young, a researcher at Mirae Asset Securities, said, "The Dow Jones index fell due to concentrated profit-taking sales in the U.S. stock market the previous day and mixed earnings announcements from financial stocks, which is a burden on the Korean stock market," adding, "Ahead of the earnings season, the market is sensitive to stock-specific issues, and a stock market showing changes according to individual stock issues will continue."

Fatigue accumulated from the sustained rise and the release of profit-taking sales are also burdens on bank stock prices. The KRX Bank Index has risen 19.35% this year, showing the largest increase among KRX indices. KB Financial Group rose 21.86%, Shinhan Financial Group 23.01%, Hana Financial Group 24.14%, and Woori Financial Group 11.26%, respectively.

Dividend Expectations and Other Upward Momentum Remain Valid

Although bank stocks have entered a pause, the upward momentum that supported the previous rise remains intact.

Choi Jung-wook, a researcher at Hana Securities, said, "The recent sharp rise in bank stock prices is due to a combination of factors such as the easing of financial system risks due to stabilization of market interest rates and exchange rates, the lifting of real estate regulations, and expectations for increased dividends," adding, "Although the short-term rise was large and there are risk factors, if dividend expectations materialize, a multiple (enterprise value relative to profitability) level-up is possible."

Kim Eun-gap, a researcher at IBK Investment & Securities, said, "Strengthening shareholder-friendly policies can act as a momentum for stock price increases," adding, "Combined with very low valuation multiples, it can serve as an investment attraction." He further added, "Although bank stock prices have risen recently, the price-to-book ratio (PBR) is 0.4 times, which is attractive in terms of valuation considering the return on equity (ROE) forecast of 10%, and even the formation of expectations for shareholder-friendly policies can enable a rebound in multiples."

Bank stocks' fourth-quarter earnings last year are expected to fall short of market consensus due to provisions and other factors. Park Hye-jin, a researcher at Daishin Securities, said, "The combined net profit of the four major financial groups for the fourth quarter of last year is expected to be 2.7 trillion won, 3.2% below the consensus of 2.78 trillion won," adding, "Due to steady profit growth until the third quarter, conservative cost reflection is expected in the fourth quarter." Most financial groups are conducting voluntary retirement, so selling and administrative expenses are expected to increase significantly, and conservative provisions are expected to be made in preparation for economic conditions.